OGJ Newsletter

June 30, 2014
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

DOC authorizes EPP, Pioneer to export condensate

Two companies have received authorization from the US Department of Commerce to sell condensate outside the US, and analysts expect the sales—probably involving condensate from the Eagle Ford in South Texas—could begin in August.

DOC's Bureau of Industry and Security (BIS) issued a private ruling on June 24 saying Enterprise Products Partners LP and Pioneer Natural Resources Co. could sell condensate to foreign buyers. Few details were immediately available.

"[DOC's] determination has led to further clarity about what the definition of processed might mean," said Michael Cohen of Barclays Research Inc. of New York. He believes "a widespread lifting of the crude oil ban is out of the question without a lifting of the Jones Act."

Condensates drop down as liquids from natural gas streams and also as part of the liquid coming out of the wellhead from shale oil plays.

Consultant Muse, Stancil & Co. previously has noted in industry presentations that much of the Eagle Ford production is condensate.

Wood Mackenzie Ltd. said it has long believed that DOC officials had the tools to authorize limited exports of condensate.

"While it may allow barrels to find a new home and some economic optimizations to be achieved, we don't think it dramatically affects crude prices in the short term," WoodMac said. Long-term effects on crude prices have yet to be studied.

The US has export bans in place for unprocessed crude oil. A DOC spokesperson said there has been no change in policy.

Cohen said the Jones Act would need to be lifted for a widespread lifting of the crude export ban because of national security and economic reasons.

"The political inter-linkage associated with these two policies means that [DOC] will likely continue to operate within the confines of the current statute," he said.

House will vote on new LNG export bill, Gardner says

The US House will vote early the following week on HR 6, which is aimed at expediting US LNG exports, Rep. Cory Gardner (R-Colo.) announced on June 20.

He also announced an amendment he and Rep. Gene Green (D-Tex.) wrote to the bill. The amendment would require the US Department of Energy to reach a national interest decision within 30 days of the applicant's project completing a National Environmental Policy Act review.

"We plan to amend the legislation on the House floor to address DOE's recent changes and provide companies and investors with the certainty they need to plan and build export facilities," Gardner said.

He made his announcement 2 days after US Sen. Mark Udall (D-Colo.) introduced a similar bill that would require DOE to make a decision within 45 days following a federal environmental review's conclusion (OGJ Online, June 19, 2014). Gardner is running to unseat Udall.

In addition to establishing a 30-day deadline, Gardner's amendment would provide for expedited judicial review by the US Court of Appeals for the circuit in which the export facility would be located, and require public disclosure of export destinations as a condition of approval to export LNG.

Encana completes $3.1 billion Eagle Ford purchase

Encana Oil & Gas (USA) Inc., a wholly owned subsidiary of Encana Corp., has completed its previously reported $3.1 billion purchase of 45,500 net acres in Karnes, Wilson, and Atascosa counties of south Texas from Freeport-McMoRan Oil & Gas LCC, a subsidiary of Freeport-McMoRan Copper & Gold Inc. (OGJ Online, May 7, 2014).

The Eagle Ford acreage produced 53,000 boe/d in the first quarter and has a drilling inventory of more than 400 locations. The deal doubles the firm's current oil production.

Encana Oil & Gas (USA) Inc. has also closed on the majority of the previously reported sale of certain properties primarily in Leon and Robertson counties of East Texas, having received $427 million of the total anticipated purchase price of $530 million (OGJ Online, Apr. 29, 2014). The company says it expects to close the balance of the transaction in the third quarter.

Exploration & DevelopmentQuick Takes

Eni granted permits for Algerian fields

Algeria's state-owned Sonatrach has granted Eni SPA three prospection permits, authorizing Eni, as operator, and Sonatrach to carry out prospection activities in the Timimoun and Oued Mya basins of southern Algeria.

The El Guefoul, Tinerkouk, and Terfas permits—issued by the National Agency for the Promotion of Hydrocarbon Resources (ALNAFT)—are valid for 2 years and cover a total area of 46,837 sq km.

The work program includes studies and drilling of prospection wells to define the potential of the areas. Eni says the three areas are considered of great interest and potential.

This partnership between Eni and Sonatrach continues a relationship in which the companies have, among other activities, previously pledged to develop unconventional hydrocarbon resources "with particular focus on shale gas," and produced rich natural gas from Menzel Ledjmet East (MLE) field on Algerian Block 405b (OGJ Online, May 4, 2011; Feb. 4, 2013).

Eni has been present in Algeria since 1981 and has interests in 29 exploration and development licenses, which are currently in production, and in three permits under development. Eni's equity production in Algeria totals 125,000 boe/d.

Eni signs PSC for block offshore China

Eni signed a production sharing contract with China National Offshore Oil Corp. for Block 50/34 off the southwestern coast of Hainan Island in the South China Sea.

The block covers 1,922 sq km in 40-90 m of water.

Eni said the contract provides for a 6.5-year exploration period in three phases.

In its 2012 notification of blocks available, CNOOC described the area as on the southeastern slope of the Yinggehai basin and western Yabei sag of the Qiongdongnan basin.

It said the block had 5,123 line-km of 2D seismic coverage. Past drilling of six wells on the block had yielded oil and gas discoveries, according to CNOOC.

Mubadala Petroleum confirms finds off Malaysia

Mubadala Petroleum, Abu Dhabi, reported that the Pagaga-2 appraisal well has confirmed an 850-m gas column in Block SK320 offshore Malaysia.

The company also confirmed the Sirih-1 discovery, the third from the operator's 2013-14 exploration program targeting a series of carbonate pinnacles within Block SK320.

This includes the Pegaga-1 and Sintok-1 discoveries previously reported, and the existing M5 discovery that the company appraised in 2012.

The Pegaga-2 well was drilled to a total depth of 2,685 m and a test of the main gas-bearing zones produced 30-50 MMcfd of good quality gas with condensate, the company reported. The Pegaga discovery lies in 109 m of water.

The Sirih-1 well was drilled to a total depth of 3,000 m and penetrated a 293-m gas column within the target reservoir. The well was plugged and abandoned as planned. The Sintok-1 well was drilled to a total depth of 2,775 m and penetrated a 290-m gas column.

Block SK320 has yielded four discoveries for Mubadala Petroleum (55% operating interest) and its partners, Petronas Carigali (25%), and Sarawak Shell Berhad (20%). Mubadala Petroleum and Shell in January swapped equity interests in the adjacent deepwater Block 2B and Block SK320 (OGJ Online, Jan. 27, 2014).

State owned Petronas Carigali participates in both blocks.

Repsol makes two western Siberia discoveries

Repsol SA has made two hydrocarbon discoveries in the Karabashsky 1 and 2 blocks in Russia's Ouriyinskoye field.

The finds could add 240 million boe in recoverable resources for the company, says the Ministry of Natural Resources and Environment of the Russian Federation, which adds that it's the largest discovery made in Russia in the last two years.

Repsol credits the use of unique drilling and seismic techniques for enabling the company to make the finds in a relatively unexplored area of western Siberia.

The company says the discoveries confirm its expectations for its Russian operations, where it is developing one of its key strategic projects, the AROG joint venture with Bermuda's Alliance Oil Co. Ltd. (OGJ Online, Aug. 20, 2012).

Repsol has been exploring the Karabashsky 1 and 2 blocks since 2010.

The company, in an effort to boost its exploratory activity, has reported more than 50 discoveries worldwide since 2008.

Repsol in 2013 posted an overall reserve replacement rate of 275%, which beat the company's reserve addition target to reach a total of 1.515 billion boe.

Russia in 2013 contributed 14,600 boe/d to Repsol's production, and in 2014, has contributed 17,640 boe/d with the startup of new gas wells on the SK field (OGJ Online, Mar. 13, 2013).

Drilling & ProductionQuick Takes

DNO suspends output from two Yemen blocks

DNO Yemen AS has suspended production totaling 3,400 b/d of oil gross from two blocks in Yemen after blockades by local groups restricted movement of equipment, supplies, and contractors.

The subsidiary of DNO ASA, Oslo, issued force majeure notices to the Ministry of Oil and Minerals for Block 32 Howarime and Block 43 South Howarime.

It invoked force majeure for Block 47 South Hood last September.

DNO said labor unions on June 22 started unilateral actions leading to work stoppages on Blocks 32 and 43.

DNO operates the blocks. It holds interests of 38.95% in Block 32, 56.67% in Block 43, and 40% in Block 47.

Petrobras reports accumulated presalt production

Petroleo Brasileiro SA (Petrobras) reported that it reached 343 million boe in accumulated production from Brazil's offshore presalt layer between September 2008 and April 2014. This news comes a month after the company reported surpassing 470,000 b/d in production from the Santos and Campos basins (OGJ Online, May 16, 2014).

Anelise Lara, Petrobras' Libra field executive manager, highlighted the company's drilling efficiency at the World Petroleum Congress (WPC) in Moscow on June 17. "When the first well was drilled in 2006, it took 134 days from the beginning of the well to the last meter drilled. In 2013, the time was down to just 60 days," she said.

There are currently 9 floating production, storage, and offloading (FPSO) units operating in the Brazilian presalt, and by 2020, Petrobras expects another 24 definitive presalt production systems, producing about 2 million b/d of oil, Lara said.

While the presalt layer today accounts for 16% of Petrobras' total production of 2.1 million b/d of oil, in 2020 this will have grown to 53% of the total production, which by then will be 4.2 million b/d, the company said.

Petrobras also reported plans to invest $153.9 billion during 2014-18 in exploration and production, of which $23 billion will be allocated to exploration. The company will invest $6.4 billion in the presalt layer alone.

Production will receive $112.5 billion, with $71.8 billion going toward presalt production. Infrastructure investments will total $18 billion.

Adding $44.8 billion in investments from Petrobras' partners, total spending on exploration and production during that period will reach $198.7 billion.

Maersk advances work in Danish North Sea

Maersk Oil has let two contracts to Technip for work associated with gas lift in two small fields in the Danish North Sea connected to the Tyra oil and gas producing center, an area where it has a larger project under way.

Technip will fabricate and install riser caissons on the unmanned wellhead platforms on Valdemar and Roar oil and gas fields to support gas lift. Both small fields are in decline.

Maersk plans to extend development of Roar field with the drilling of up to three wells from the existing platform. According to the Danish Energy Agency (DEA), the operator estimates the first well will increase gas production by a total of 300 million cu m.

To the south, Technip also will fabricate and install an 18-km, 8-in. diameter flowline between the Rolf A and Gorm E platforms and perform related services.

The larger project is installation of a four-legged platform in 38 m of water on Tyra Southeast field. The platform will accommodate 16 wells. The DEA said Maersk expects 12 wells planned initially to boost Tyra Southeast production by 3.3 million cu m of oil and 4.6 billion cu m of natural gas.

The new platform will be bridge-linked to an existing, unmanned platform on the field. The project includes a new pipeline to carry natural gas from Tyra East field for gas lift.

Production from the new platform is to begin next year from Danian and Upper Cretaceous chalk reservoirs at depths of about 2,050 m.

Maersk operates Tyra area fields on behalf of the Danish Underground Consortium, in which it holds a 31.2% interest. Other consortium members are Shell 36.8%, state-owned Danish North Sea Fund 20%, and Chevron 12%.

BNV-Norstra deal sets Montana gas drilling

Privately held BNV Energy LLC, Houston, has entered an agreement with Norstra Energy Inc., Spokane, to drill two natural gas wells and build a related gathering system to earn a 60% working interest in 5,382 acres in Northwest Montana.

The agreement calls for BNV to spend $1.5 million for the drilling and gathering work in Lewis and Clark County and to complete the projects by Sept. 30. It provides for an extension until June 15, 2015, for the second well.

The BNV working interest is to come out of the 80% working interest acquired by Super Nova Petroleum, Vancouver, BC, in a farmout from Norstra in January covering about 10,000 acres in what Norstra calls its Milford Colony Project. That area includes the acreage covered by the BNV agreement and is close to the Northwestern Energy gas pipeline system.

Norstra retains a 20% carried interest.

BNV, after depositing $400,000 in a drilling escrow account, will receive 4 million warrants to buy Norstra stock.

Norstra characterized the deal as part of a shallow gas play developing along with the Bakken oil play on the Rocky Mountain front.

"We were and are a company very interested in the deeper oil in the Bakken formation," explained Glen Landry, chief executive officer. "But the potential natural gas in Lewis and Clark County cannot be ignored, with its several hundred feet of pay through two separate sand formations reaching depths of almost 5,000 ft."

PROCESSINGQuick Takes

Gathering, cryo plant on tap for Oklahoma Woodford

Tall Oak Midstream LLC, Edmond, Okla., will build 250 miles of gas low-pressure gathering pipeline and a 75-MMcfd cryogenic processing plant in Payne County in the central northern Oklahoma Woodford play.

The Battle Ridge gas plant is to start up at yearend with nitrogen-rejection capacity and will accommodate expansions to 300 MMcfd, according to Carlos Evans, Tall Oak Midstream's chief commercial officer.

The pipeline will serve multiple producers in the play's "liquids-rich, stacked pay zones," including the Mississippi Lime, Woodford shale, and Cleveland formations, the company said. It also will provide direct access to downstream markets including Southern Star Central Gas Pipeline and Enable Gas Transmission for residue gas.

The system will be anchored by production from American Energy-Woodford LLC, a unit of American Energy Partners LP, Oklahoma City. The coverage spans about 1 million acres of previously undedicated acreage in Payne County and portions of Creek, Logan, Lincoln, Noble, and Pawnee counties.

AEW contributed 60 miles existing gathering lines in exchange for a minority interest in the Tall Oak system with an option to increase its nonoperating interest up to 50% in the system, the company said.

Tall Oak is supported by $400 million in private equity commitments from EnCap Flatrock Midstream and Tall Oak's founders, the company said. EnCap Flatrock made an initial $100 million commitment to Tall Oak in February and has since made additional commitments totaling $300 million.

Oneok Mont Belvieu expansion receives GHG permit

The US Environmental Protection Agency (EPA) has issued a final greenhouse gas (GHG) prevention of significant deterioration (PSD) construction permit to Oneok Hydrocarbon, an operating subsidiary for Oneok Partners LP, for expansion of the company's fractionator at Mont Belvieu, Tex., east of Houston.

The permit allows Oneok to build two new units at an estimated cost is $800 million.

Oneok Partners LP owns the third-largest NGL fractionation capacity at Mont Belvieu, with its current capacity of 235,000 b/d already set for expansion (OGJ, June 7, 2014, p. 86).

Oneok holds an 80% interest in and operates MB-1, a 160,000-b/d NGL fractionator (OGJ Online, Apr. 15, 2013), and has a long-term, third-party fractionation-services agreement for an additional 60,000-b/d NGL fractionation capacity, according to the company's yearend 2013 SEC filing.

In addition to MB-1, in December 2013 Oneok completed its $375 million, 75,000-b/d MB-2 fractionator at Mont Belvieu, the company said in its yearend 2013 report.

EPA's announcement said it has finalized 44 GHG permits in Texas, proposed an additional 7, and has 19 more under review and permit development in Texas.

Dangote Group finalizes Nigerian refinery contract

Nigerian conglomerate Dangote Group has officially entered an agreement with Engineers India Ltd. (EIL) for project management consultancy (PMC) and engineering, procurement, and construction management (EPCM) for a grassroots refinery and polypropylene plant in Nigeria (OGJ Online, Nov. 25, 2013).

The contract, which was officially signed in early June, is valued at $139 million, says EIL.

EIL will provide project PMC and EPCM services for implementing the 400,000-b/d refinery and 600,000-tonne/year polypropylene plant in in Lekki Free Trade Zone near Lagos, Nigeria, EIL said.

Dangote Group earlier had planned to cite the refinery and petrochemical project in the free-trade zone of Nigeria's Ogun state (OGJ Online, June 17, 2014).

The refinery project will include a crude distillation unit, single-train residual fluid catalytic cracking unit, diesel hydrotreating unit, continuous catalyst regeneration unit, alkylation unit, polypropylene unit, as well as utilities and off sites, including a captive power plant and associated infrastructure, according to EIL.

A single-point mooring terminal for crude oil and product handling also would be integrated with the refinery, EIL said.

The official solidification of the agreement with Dangote, which was first announced late last year (OGJ Online, Nov. 25, 2013), makes this EIL's largest ever single consultancy assignment, the company said.

The announcement of the EIL contract follows African Development Bank's June 13 approval of a $300 million loan to Dangote Group for the construction and operation of both the greenfield petrochemical complex and a fertilizer manufacturing plant (OGJ Online, June 17, 2014).

TRANSPORTATIONQuick Takes

Partners to finish Austrian South Stream leg by 2016

OAO Gazprom and OMV AG signed a shareholders' agreement for South Stream Austria GMBH, completing the final investment decision for the natural gas pipeline's Austrian section with an eye on commissioning in late 2016.

The Austrian section of South Stream will transport 30-32 billion cu m (bcm)/year from the Hungarian border to Baumgarten, Austria. Gazprom and OMV expect all construction permits to be obtained by late next year.

Russia and Austria in 2010 signed the intergovernmental agreement for the implementation of the project in Austria, with Gazprom and OMV establishing South Stream Austria the following year. The two companies signed a memorandum of understanding in April to build South Stream's Austrian leg (OGJ Online, Apr. 30, 2014).

South Stream will ship 63 bcm/year across the Black Sea to Southern and Central Europe, with first gas scheduled for late 2016 and full capacity in 2018.

Bonaparte FLNG partners ponder concept options

The joint venture of GDF Suez and Santos Ltd. in the Bonaparte Gulf has decided to consider other potential development options as well as the floating LNG (FLNG) concept for the development of its Bonaparte natural gas fields.

In April the GDF Suez-operated project missed another of its deadlines set earlier in the development planning (OGJ Online, Apr. 24, 2014).

The Petrel, Tern, and Frigate fields lie 250 km west of Darwin and one of the alternate options will be a pipeline connection to Darwin. The partnership says that while the fields have material value and have been fully appraised, the future development using FLNG does not currently meet the companies' commercial requirements despite being technically robust.

As a result the proposed Bonaparte FLNG development will not be taken into FEED stage at the moment.

Operator GDF Suez has 60%. Santos with 40% received a $200 million cash consideration when the Bonaparte JV was formed and has since received a full carry from GDF Suez on the study and development costs encountered so far.